Strategic Report
Corporate Governance
Financial Statements Notes to the Consolidated Financial Statements/Continued
Finsbury Food Group Annual Report and Accounts 2020
95
Sensitivity A 1% increase in the base rate or LIBOR would have the following impact on interest charges and associated net assets for the Group, this sensitivity relates to interest-bearing bank borrowings and interest rate swaps only and excludes possible changes in pension financing costs.
2020 £000
Profit decrease Decrease in net assets
A 1% decrease in the base rate or LIBOR would have an equal and opposite impact to those listed above. The above movement is not equal to 1% of interest-bearing loans because of interest rate swap cover that is in place.
ii) Commodity Prices Any rises in commodity prices can adversely impact the core profitability of the business. The Group will aim to pass on its increased costs to its customers as far as is reasonable in the circumstances whilst maintaining its tight control over overhead costs to mitigate the impact on consumers. The Group maintains a high expertise in its buying team and will consider long-term contracts where appropriate to reduce uncertainty in commodity prices. Further information on input prices and risks is contained in the Strategic Report.
iii) Foreign Exchange Risk We acquired manufacturing facilities in Poland through the Ultrapharm acquisition. The sites supply to mainland Europe with income in Euros and local costs denominated in Polish złoty. We supply UK-manufactured products to Lightbody Stretz Ltd, our 50%-owned selling and distribution business which trades in mainland Europe. We also buy a small number of commodities and capital equipment in foreign currency. As a consequence, we are exposed to fluctuations in foreign currency rates. We manage this risk by continually monitoring our exposure to foreign currency transactions. We use forward currency contracts when required and our procurement team works hard to ensure we get the best prices for commodities and equipment giving special consideration to the benefits of contracts denominated in foreign currency.
e) Debt and Capital Management The Group’s objective is to maximise the return on net invested capital while maintaining its ongoing ability to operate and guaranteeing adequate returns for shareholders and benefits for other stakeholders within a sustainable financial structure.
The Coronavirus crisis has had a profound impact on the economy and heightened uncertainty around future economic recovery, therefore the Board took the decision as announced on 29 March 2020, to withdraw its proposed interim dividend. While the Board remains committed to the payment of dividends, it believes it is prudent to conserve the Group’s cash at this time of heightened instability. The Board will assess the Group’s cash position and the outlook for the business at time of the full year results, and will adjust its approach to the final dividend accordingly. It is the Company’s intention to pay dividends at an affordable rate so that the Company can continue to invest in the business in order to grow profits.
The Group manages its capital by monitoring its gearing ratio on a regular basis, there are also covenant tests which are monitored regularly and presented to the Group’s banks every six months. There have been no breaches of covenant tests during the year and the gearing ratio stands at 0.4 (2019: 0.4). The gearing ratio is calculated taking the total net debt including deferred consideration over net assets.
The Group considers its capital to include share capital, share premium and capital redemption reserve. The Group does not have any externally imposed capital requirements.
24. Capital and Reserves The reconciliation of movement in capital and reserves is shown as a primary statement: Consolidated Statement of Changes in Equity on page 65.
Equity comprises the following:
• Share capital representing the nominal value of equity shares; • Share premium representing the excess of the fair value of consideration received for the equity shares; (net of expenses of the share issue) over nominal value of the equity shares;
• Capital redemption reserve representing the buyback and cancellation of shares at nominal value; • Employee share reserve representing ordinary shares held in an employee benefit trust (EBT) to satisfy awards made to employees; and • Retained earnings representing retained profits.
300 112
2019 £000
589 388
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